575 Phil. 293
AUSTRIA-MARTINEZ, J.:
I HEREBY MR. DEMETRIO M. DE GUZMAN TENDER MY TERMINATION OUR SIGNED CONTRACT FOR ABS-CBN BACOLOD MECHANICAL WORK DUE TO TECHNICAL REASONS AND ALSO INFORMING YOU AND YOUR COMPANY THAT ANY OF MY EMPLOYEE YOU ABSORBED EFFECTIVE THIS DAY, MAY 4TH 1996 THAT I HAVE NO MORE RESPONSIBILITIES TO ANY UNTOWARD INCIDENT OR ANY ACCIDENT THAT WILL OCCUR.[7]Martin S. Co, the Executive Vice-President of Con-Field, responded to de Guzman with a letter dated May 7, 1996,[8] to wit:
In response to your letter dated May 04, 1996, please be informed that CON-FIELD CONST. & DEVT. CORP. is not pressuring your company to terminate your contract for MECHANICAL WORKS at Radio-TV station Bldg. In Bacolod City. As we understand, it is your own decision to terminate the contract.Subsequently, Con-Field took over and completed the project.
Let it be known that CON-FIELD did not in any way intend to terminate the contract neither facilitated any action for the termination of your contract with us. But on the other hand extended our support by financing the project, i.e. Mechanical Works thru our provision of materials & consumables, in addition to payroll of your workers.
We had accepted your termination of contract with the ff: basis;We wish to inform you that the cost of labor & materials that we will purchase for the said works will be deducted on your remaining contract balance.
- Lack of Equipment to complete the project up to commissioning
- Lack of technical capability in respect with shop drawing and other documents to be submitted to us, works schedules submittals.
- Lack of manpower & supervision to complete the project on time. This resulted to A/C equipment damages and lack of coordination to other works.
- Lack of financial support for the project.
We thank you for your understanding in your move to terminate the contract as this reflects the true situation of your work & by this move also impede the jeopardy of over shooting more in the mechanical work schedule.
We hope that we have made our position clear and we hope this is the last time that we discuss this issue.[9]
WHEREFORE, premises considered, the Court hereby renders judgment in favor of the plaintiff and against the defendants ordering:EASCO appealed the RTC Decision to the CA.SO ORDERED.[15]
- Defendant FREEZINHOT to pay plaintiff the amount of P616,961.14 as principal obligation plus the legal interest from the filing of the complaint;
- Defendants FREEZINHOT and EASCO jointly and severally to pay plaintiff the sum of P346,150.00 for and as the amount of Performance Bond plus legal interest from the date of filing of the instant case until fully paid;
- Defendants FREEZINHOT and EASCO jointly and severally to pay plaintiff the amount of P20,000.00 for attorney's fees;
- On the cross-claim, the defendant FREEZINHOT to reimburse the defendant EASCO the sum equivalent to its share plus legal interest from the date of payment of EASCO to the plaintiff; and
- Defendants to pay the cost of suit.
WHEREFORE, premises considered, the instant appeal is hereby PARTLY GRANTED, in that the Decision of the Regional Trial Court of Quezon City, Branch 216, dated June 22, 2000 is hereby AFFIRMED, with the sole MODIFICATION that the Eastern Assurance Surety Corporation's liability to pay plaintiff attorney's fees is hereby DELETED.EASCO filed a Motion for Reconsideration[18] but the CA denied it in its Resolution[19] dated August 26, 2003.
SO ORDERED.[17]
Petitioner contends that respondent admits that Freezinhot lacks substantial capital or investment in the form of tools, equipment, machineries and supply of materials which are needed in executing the agreed project; that the sub-contracting agreement between respondent and Freezinhot was, in fact, not implemented because the project was done under the account of respondent and that Freezinhot simply supplied skill and services to perform the required work; and that, in essence, what was carried into effect by respondent and Freezinhot was a "labor-only" sub-contracting arrangement which is prohibited under the Labor Code.
- The apellate court glaringly committed an error of law when it wrongfully concluded in its assailed decision that:
"By no stretch of imagination can this set of circumstances and evidence be construed to mean that the plaintiff had mutually terminated its agreement with defendant Freezinhot, as it appears that such pre-termination was due to the unilateral act of Freezinhot and Demetrio de Guzman." (par. 1, p. 7, Decision, Annex "A-1" of Petition)which aforecited ruling is contradicted by the oral testimony or express admission of plaintiff's witness, Executive Vice-President Martin S. Co, which unmistakably shows or tends to show that:
1) The agreement (Exh. A) was not consummated, implemented, carried into effect, or its conditions fulfilled or performed, except for Freezinhot's securing of a performance bond in the amount of Php346,150.00 required under the agreement on the basis of which EASCO issued the required bond in behalf of Freezinhot and in favor of Con-Field.
2) In lieu of the said sub-contracting agreement, the parties effected the prohibited "labor-only" sub-contracting arrangement wherein Freezinhot merely supplied workers to Con-Field who allowed them to work under its (Con-Field's) own account and responsibility due to Freezinhot's inability to execute the agreed work on its own due to lack of substantial capital and the tool, equipment, among others, necessary therefore, without due notice to EASCO.
3) Con-Field's admission in its letter (Exh. E) that it "had accepted your (Demetrio de Guzman's) termination of contract," without the knowledge and consent of EASCO completely extinguished and discharged EASCO from all liability in its contract of suretyship.- The accessory contract of suretyship cannot exist without a valid principal obligation as in this case where the sub-contractor failed to fulfill or satisfy the conditions set forth in the said agreement.
- The appellate court manifestly committed an error of law when it ruled that the 78% work completion by the sub-contractor as testified to by the said plaintiff's witness -
"is by no means conclusive and the same was given as a mere opinion." (Penultimate par., p. 7, Decision, Annex "A-1").being grounded entirely on surmises or conjectures to justify the award of damages equivalent to EASCO's performance bond, and which is iniquitous or unconscionable, assuming without admitting that the bond is liable therefor.[20]
Anent the issue of petitioner's liability as surety, the CA made the following findings and conclusion which the Court quotes with approval, viz:ARTICLE VI
FAILURE TO COMPLETE; LIQUIDATED DAMAGES; RIGHT TO TAKE OVER
Whereas time being of the essence in this Agreement and it is agreed that the CONTRACTOR [herein respondent] would suffer losses by the delay or failure of the SUB-CONTRACTOR [Freezinhot] to have the work contracted for completed in all parts within the time stipulated in Article IV above, the SUB-CONTRACTOR hereby expressly covenants and agrees to pay to the CONTRACTOR for each day of delay, Sundays and Holidays included, the sum of ONE THOUSAND SEVEN HUNDRED THIRTY & 75/100 PESOS (P1,730.75) Philippine Currency, per day as liquidated damages, notwithstanding, if as assessed by the CONTRACTOR, the progress of work is slow or that from all indications as adjudged by the CONTRACTOR, the SUB-CONTRACTOR will not be able to complete the work in all parts within the stipulated time or that construction and/or installations are not in accordance with the approved plans and specifications, the CONTRACTOR shall have the right to take over the construction and/or installation work either by itself or through another SUB-CONTRACTOR charging against the SUB-CONTRACTOR and its sureties any excess cost occasioned the CONTRACTOR, thereby, together with any liquidated damages that may be due to the CONTRACTOR under this Article.
Any sum which may be payable to the CONTRACTOR under this Agreement may be deducted and retained by the CONTRACTOR from any balance which may be due to the SUB-CONTRACTOR when said work shall have been finished and accomplished as herein provided.
This written Agreement may be suspended by the CONTRACTOR, in whole or in part, after a prior written notice to the SUB-CONRACTOR, if as determined by the CONTRACTOR such suspension will serve its best interest.[25]
Under the terms of Exhibit "B," EASCO bound itself, as surety of Freezinhot, to the plaintiff Con-Field in the amount of P346,150.00, should Freezinhot be unable to faithfully comply with the sub-contract for the supply and installation of a centralized airconditioning system at the ABS-CBN building in Bacolod City, Negros Occidental. Such obligation to pay by EASCO is solidary with Freezinhot and is realized once the latter has failed to faithfully comply with the sub-contract. When the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.With respect to the last assigned error, the Court notes that the CA, in fact, did not give credence to the testimony of Martin Co, the Executive Vice-President of respondent, that petitioner was able to complete around 78% of the work required of it. The Court finds no error in the pronouncement of the CA that the estimate "is by no means conclusive as the same was given as a mere opinion, and without basis in actual performance reviews or progress reports."
By evidence presented, plaintiff Con-Field had proven to our satisfaction that Freezinhot was unable to faithfully comply with the sub-contract, without just or lawful cause, and without the participation or encouragement of Con-Field.
In fact, it appears that Con-Field had emphatically instructed Freezinhot to comply with the schedule of work given to it, inasmuch as the progress of Freezinhot's work had been sluggish and dismal. However, instead of shaping up and complying with the work requirements and schedule, Freezinhot, through its President, wrote to Con-Field terminating its work in default of its obligations under the parties' supply and installation Agreement. Constrained by a deadline of its own to the ABS-CBN Corporation, plaintiff Con-Field had no recourse but to recognize Freezinhot's unilateral termination and continue with the installation work itself, so as not to be in default itself with ABS-CBN.
By no stretch of imagination can this set of circumstances and evidence be construed to mean that the plaintiff had mutually terminated its agreement with defendant Freezinhot, as it appears that such pre-termination was due to the unilateral act of Freezinhot and Demetrio de Guzman. On the other hand, no evidence has bee presented by the appellant to show its claim that plaintiff Con-Field was jointly responsible for the pre-termination of the contract.[26]